With Warren Buffett about as close as a capitalist can come to being canonized by the markets, Berkshire Hathaway can't exactly fly under the radar. Still, one of the most unique aspects of Berkshire Hathaway is that, unlike other marquee securities within the U.S. corporate elite, Berkshire Hathaway's shares have always traded on the QT. This, of course, all changed last week, when Berkshire Hathaway's B shares completed a 50-to-1 stock split.
Granted, five days of trading history with the new Berkshire B shares doesn't provide much of a window onto long-term return potential. Average daily trading volume in the Berkshire Hathaway B shares has soared though, from 41,000 shares traded to as high as 6.6 million shares traded -- and that was just on Monday. In the past five days, approximately 50 million Berkshire Hathaway shares have been traded.
Consider this: the 50 million Berkshire Hathaway shares traded over the past five days represent what would have previously amounted to almost three-and-a-half years' worth of trading volume for the Berkshire Hathaway B shares.
You can certainly say that Berkshire is undervalued by 30 per cent or 40 per cent. That undervaluation adds an attractive margin of safety at this point in the market cycle. Larry Coates, manager of the Oak Value Fund
It's not hard to understand why there was such interest in Berkshire Hathaway after the stock split. The difference between a $3,400 (U.S.) share and a $70 share means the market's most revered investment company can be purchased for a similar price to a few mail-order grass-fed Omaha steaks.
All of which justifies, by our way of thinking, a closer look at today's new Buffett B shares.
Investors clearly feasted during the first days of the "Buffett for All" era; it was a market-specific turn on a U.S.-specific cultural phenomenon. And it makes sense: the U.S. has always been about transforming luxury into an item of mass consumption -- the proverbial keeping up with the Joneses -- and, suddenly, Americans could keep up with the formerly off-limits stock of Warren Buffett.
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Still, it would be wrong to get caught up in the publicity of the Berkshire Hathaway stock split as a reason, in and of itself, to purchase shares. Market analysts, and even Mr. Buffett himself, have shied away from placing too much emphasis on the historic event, and with good reason: intrinsic value doesn't change just because one share becomes 50.
The critical question for investors then, amidst the stock-split publicity, is whether now is a uniquely good time to invest in the cut-rate version of Warren Buffett?
Ultimately, this question should lead investors to take two issues into consideration: what makes Berkshire Hathaway unique when its trading profile is no longer unique; and how Berkshire's Hathaway's underlying portfolio holdings are positioned given the economic outlook.
When it comes to stock structure, Berkshire Hathaway is a best-in-class stock that is effectively its own peer group. Standard & Poor's classifies Berkshire Hathaway as a financial company, but that is really for lack of a definition that fits. And even though there are market conglomerates that seem hard to classify -- such as a General Electric making kitchen appliances and wind turbines, while also structuring mortgage pools and creating television programming -- Berkshire's unique three-pronged structure is what ultimately distinguishes it from the broader equities universe.
Pillars of Business
Berkshire's first business pillar is the portfolio of public traded securities, the big names: Coke , Kraft , Wal-Mart and Wells Fargo , to name a few.
The other pillars of the Berkshire business are much harder to value than the public securities, and they are what make Berkshire a unique stock. If Berkshire were no more than a collection of big-cap U.S. companies, Buffett would likely be a little known mutual fund manager fighting the Sisyphean battle to beat the index returns year after year.